Capital Market: Meaning, Functions and Objectives

Capital Market: Meaning, Functions and Objectives

Capital Market Definition: What Is Capital Market?

Capital market refers to a market where the financial instructions mobilize the savings of the people and lend them for long term period for raising new capital in the country.

Capital market in other words refers to the long term borrowing and lending of capital funds. In another perspective, capital market is a market in which financial securities such as stocks, bonds and government loan instrument are bought and sold.

Types Of Capital Market

The Nigerian capital market is divided into two segments- The primary and secondary market; While the primary market provides the vehicle for raising fresh capital by government and corporate bodies, the secondary market provides a mechanism for investors to buy or sell existing securities.

Functions Of Capital Market

  1. Capital Formation- By championing savings and making them available to companies and public authorities that need them
  2. The capital market offers access to a variety of financial instruments that enable economic agents to pool, price and exchange risk.
  3. It encourages saving in financial form- Through assets with attractive yields, liquidity and risk characteristics
  4. Through the stock exchange, the market gives long term leaders the opportunity to convert their holding into cash. It also offers companies which have securities the opportunity to obtain cash without reducing their liquidity.
  5.  The capital market plays an important role in mobilizing funds and resources needed for development and offers the forum for implementing its policies relating to stabilization, monetary controls and regulation of the banking system.

Objective of Capital Market 

Market Regulation

The prime objective of capital market regulation is investor protection, creative accounting, insider dealings and misuse of client money are some of the vices that investors needs to be protected from.

Capital market regulation has its core objectives, the following are some of them:
  • Protection of investors
  • Ensuring that the markets are fair, efficient and transparent.
  • The reduction of systemic risk
In conclusion, regulation of the capital market is meant to protect public interest which operates on the need to promote economic development and confidence which in turn should bolster inward investment.
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